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In Ukraine, an Oligarch Challenges Kiev's Unity

March 26, 2015 | 13:02 GMT


The dismissal of oligarch Igor Kolomoisky, the governor of Ukraine's Dnipropetrovsk region, following a tense weekend standoff at the offices of Kiev's top energy companies highlights the government's difficulty reining in one of Ukraine's most powerful oligarchs. On March 25, Ukrainian President Petro Poroshenko dismissed Kolomoisky from his post after the oligarch offered his resignation during a meeting between the two leaders. Kolomoisky had sent armed men to the Kiev headquarters of the country's top oil transport and producing firms in an attempt to show his influence and dissuade government officials from trying to weaken his position in companies he has indirectly controlled for years. The decision to dismiss Kolomoisky indicates the Ukrainian government's willingness to hold oligarchs accountable. However, Poroshenko's decision to remove Kolomoisky from his post will lead to a more fragmented pro-Western coalition in Ukraine, because the influential Kolomoisky will seek to keep his influence and build his own power base. A weaker pro-Western alliance will struggle to step up integration with the West, ultimately serving the Kremlin's interests.


For years, Kolomoisky has indirectly controlled decision-making in state-owned oil pipeline manager UkrTransNafta through his ally, Oleksandr Lazorko, who served as the company's chief executive. On March 20, when Lazorko lost his post as a result of attempts by some in the coalition government to weaken Kolomoisky's influence over the company, Kolomoisky arrived at the company's headquarters accompanied by armed men in a display of strength. Three days later, armed men controlled by Kolomoisky surrounded the headquarters of Ukraine's top oil producer, Ukrnafta. Kolomoisky's decision to take over the Ukrnafta headquarters stemmed from his opposition to the Ukrainian parliament's decision to lower the percentage of stakes held in the company that shareholders need for a quorum at board meetings. Kolomoisky's Privat Group is a minority shareholder in the company, while the Ukrainian state owns a majority of the firm. With the new reform, the state would be able to make decisions regarding the oil producer without Kolomoisky's consent, potentially limiting Kolomoisky's ability to financially benefit from the firm's activities.

Influence in the East

Kolomoisky has been instrumental in preventing the rise of a pro-Russian separatist movement in the Dnipropetrovsk region, and over the past year his clout in the government and in major economic sectors has only grown. This has made him perhaps the most powerful oligarch in Ukraine, a position once held by Rinat Akhmetov prior to the 2014 uprising. Kolomoisky's allies include the mayor of Kharkiv and governor of Odessa, as well as members of parliament belonging to a variety of pro-Western parties, including the Petro Poroshenko Bloc and Prime Minister Arseniy Yatsenyuk's People's Front. Nevertheless, Kolomoisky's rise has unnerved reformers and threatened the interests of other pro-Western coalition members. His decision to publicly challenge the government by physically taking over buildings belonging to Ukraine's energy companies highlights the government's weakness in the face of deeply entrenched oligarchic interests. Poroshenko ordered that the men surrounding the Ukrnafta headquarters on March 22 be disarmed, but the government and police took no concrete action to remove the group from the headquarters. The Kolomoisky-controlled armed individuals left the headquarters on their own, without being disarmed or facing legal charges for their actions.
Kolomoisky has clashed for months with members of the governing coalition on several issues, and the oligarch's interests did not always align with those of the businessmen and politicians who support the ruling government. Prosecutor General Vitaliy Yarema's resignation is in part the outcome of a struggle between Kolomoisky and Poroshenko, who appointed Yarema. Kolomoisky aimed to boost his own influence over the prosecutor general's office and hamper efforts to investigate alleged illegal activities involving his deputies.

The government in Kiev depends on influential oligarchs and leaders such as Kolomoisky to maintain security within their regions and finance battalions that reinforce the Ukrainian military in the country's east. Without Kolomoisky's support, the central government could struggle to maintain a stronghold in Dnipropetrovsk and other eastern regions such as Kharkiv. There are crucial swing regions in the east whose leaders are allied with Kolomoisky and have remained on the side of the Ukrainian government throughout the conflict. Moreover, the government in Kiev has had little success in fully integrating battalions into its regular military structure, and without the support of battalion backers such as Kolomoisky, coordination between the battalions and the military could suffer. At the same time, Kolomoisky remains highly influential through his control of assets in other sectors, such as PrivatBank, Ukraine's largest bank, and the 1+1 television station.

An Alternative to Poroshenko

Emboldened by his growing influence over the past year, Kolomoisky has started to challenge other oligarchs. He is embroiled in a row with Victor Pinchuk, a steel magnate and the son-in-law of former President Leonid Kuchma. Pinchuk was one of Ukraine's most powerful oligarchs under previous presidential administrations. Kolomoisky is also looking to take advantage of the weakening of Rinat Akhmetov, whose Donetsk-based business empire suffered greatly as a result of the fighting in eastern Ukraine and who is somewhat tainted, in the eyes of some Ukrainian citizens and the current government, because of his past association with the government of former President Viktor Yanukovich. Even so, Kolomoisky's faction has vied with Poroshenko and his close business allies for control of assets belonging to the weakened oligarchs and former allies of Yanukovich. There are unconfirmed reports that his dismissal was part of a deal between Kolomoisky and Poroshenko, whereby Kolomoisky would be willing to give up his influence over Ukrnafta in exchange for avoiding consequences for the incident at the offices. However, following his dismissal, Kolomoisky opened a Facebook page and appears to be preparing to launch his own political movement. In the past, Kolomoisky has preferred alliances with individuals across the political spectrum over his own political base. At the moment, despite his substantial economic and political influence, Kolomoisky does not have a significant, organized popular support base. Nevertheless, following his dismissal from the post of governor, Kolomoisky may now be embarking on a new path, creating new alliances and an alternative political base that could counteract Poroshenko, whose popularity has been waning.

 The intensified struggle among members of the pro-Western coalition comes at a time of double-digit inflation and austerity measures under Ukraine's new agreement with the International Monetary Fund. The IMF program, which envisions $40 billion in aid over four years, of which $17.5 billion would come from the IMF, hinges upon Ukraine's ability to implement a range of economic reforms, including better governance and curbs on corruption. Without aid from the international community, Ukraine would face bankruptcy. On the one hand, oligarchs such as Kolomoisky prioritize maintaining and boosting their own hold over parts of Ukraine's economy. However, should the IMF decide that Ukraine is not complying with the terms of its agreement, the oligarchs' business interests would suffer greatly.

For Russia, further divisions within Ukraine's pro-Western coalition would be a welcome development because they would limit the government's ability to effectively integrate with the West and likely undermine the pro-Western coalition's popularity within Ukraine. There are already signs that the conflict over the energy firms is endangering the coalition's cohesion, with four pro-Kolomoisky members of the Petro Poroshenko Bloc announcing their departure from the party on March 23. A protest in support of Kolomoisky reportedly will take place in Dnipropetrovsk on March 28. Protests are one of the key indicators testing the cohesion of the government, which faces pressure from the economic crisis, military conflict in the east, and competition among the elites.

The pro-Western coalition will likely keep its hold on power, but infighting will undermine its coherence. While Kolomoisky has lost his position as governor of Dnipropetrovsk, he still holds on to various levers — from control of Ukraine's largest bank to alliances across the political spectrum — which he will use to bolster his influence. Members of the coalition in Kiev will set their differences aside to meet the basic requirements of the IMF package and continue cooperating with Western institutions, but disputes over coveted assets and control of key government posts will continue and will ultimately cast a shadow over the government which, in the eyes of many Ukrainians, came to power on the promise of radical reforms.